The Year Ahead in Energy Storage Policy

Julian is a staff writer at Greentech Media, where he reports on energy storage, solar power and other clean energy sectors. He also has experience covering clean transportation, state and federal energy policy, and climate adaptation. Previously, Julian reported for CityLab at The Atlantic and conducted grant-funded climate change reporting in Bangladesh. He graduated from Duke University.

The energy storage industry enjoyed a moment in the spotlight last week when the White House hosted a summit on that topic. Now this burgeoning sector will work to capitalize on this new exposure to get policies in place that allow storage markets to grow.

The core message energy storage companies are trying to send is that their products provide a value to the grid, but it’s a value that the markets currently aren’t designed to compensate. The rules were written before this technology came into its own, and now they’ll need to be amended for storage providers to recoup investments that yield tangible services to the grid. As electric generation shifts away from central, thermal plants to more distributed and variable renewable sources, the ability to flexibly store energy will play an ever more critical role.

To analyze these trends and the future outlook for energy storage, Greentech Media sat down with Jason Burwen, policy and advocacy director for the Energy Storage Association, in Washington, D.C. Here’s what’s on the horizon for the industry.

Expanding recognition

Storage started out scrawny a few years ago but has since put on some serious muscle. The U.S. energy storage market was a humble $111 million in 2013, but shot up to $441 million by the end of 2015 and is expected to grow sixfold by 2021, according to the Energy Storage Monitorreport series published by GTM Research and ESA.

To keep on growing, the industry needs to get its story out to more people and help push the policy conversation in a direction that creates opportunities for storage to provide flexibility, reliability and renewables integration to the grid. The White House summit, which came with a host of utility, industry and government storage commitments, indicates that the level of awareness is growing, Burwen said.

“To rise to the level of interest that the White House decides to specifically put its finger on it and say, ‘This is important, we need to do something about this,’ it's sort of a sign that this is no longer just the purview of energy geeks and people who do utility planning,” he said.

Following the announcements, the federal government is on notice that storage is an energy priority moving forward, at least for the remainder of the current administration. In particular, the General Services Administration will put out a request for information about installing storage in place of diesel backup generators on government buildings, and the military is launching storage projects on several different bases.

The federal endorsement may prompt more people to consider storage projects for their energy needs. Raising awareness can be a slippery, hard-to-pin-down metric, but it does tackle a core obstacle to storage expansion: inertia.

“We have an electric system today,” Burwen said. “It has rules. You could argue those rules could be better, you could argue reliability could be better, but at the end of the day, for the most part, the lights are on, and no one is really all that unhappy about that from a user standpoint.”

Overcoming the attitude of “if it ain't broke, don’t fix it” requires convincing utilities, generators and grid operators that it’s worth their while to change how they do business in order to claim the prospective benefits of storage. It also means competing for attention with the other players already providing assets in the system. It’s natural, for instance, that grid operators would be more attuned to the problems of a generator running thousands of megawatts of assets than to a new storage company that wants to enter a market.

“It's a standard sort of incumbent/new entrant issue, which is fine; that's how all things have to start,” Burwen said. “The case we make is that there's a lot of value here and if you're doing the looking ahead, it would be best to get this worked out sooner than when those problems will start showing up in greater intensity.”

The value of storage, though, won’t be realized until the rules of the market change, and that will take more than just awareness.

FERC could help open the market

The Federal Energy Regulatory Commission, which oversees U.S. energy markets, is in the midst of re-evaluating several policies that could open up more of a market for storage.

Currently, California and the regional grid PJM Interconnection (excluding New Jersey) together account for 92 percent of U.S. energy storage deployments. That’s because there's a short-term frequency regulation market in PJM and incentives for self-generation in California. The storage industry is working to convince FERC to apply changes such as these more broadly.

Burwen pointed to three particular FERC dockets that have the potential to improve the market. The storage docket deals with barriers to market entry. The interconnection docket looks at the physical process of connecting storage to markets. And the price formation docket examines what a flexible resource like storage can get paid to do.

Storage can’t meaningfully compete in existing capacity markets, which are geared toward valuing long-term commitments of electricity, Burwen said. Existing markets generally call for four hours of duration or more. Storage can provide grid services on a shorter time-scale, from a few seconds seconds to a couple hours, so shortening the requirements would open up room to compete for that role.

“You're going to get more variable sources of generation and potentially more distributed sources of generation over time,” Burwen said. “System variability is going to become less bounded and increasingly less predictable. If there is no signal to market participants for the provision of [flexibility], then that is going to be a problem.”

Murmurs in Congress

Storage has some allies on Capitol Hill, but there might not be much coming out of the legislature for the next few months.

A bipartisan crew of congressmen introduced a bill in May to establish a 30 percent investment tax credit for storage, giving it the kind of boost that renewables have been getting for years. But chances are slim that this will go anywhere. The legislature is still fighting over renewable energy tax credits that were supposed to go into the big spending bill in December, but were left out of the final text.

Storage providers stand to gain from a law relieving the tax burdens of early adopters and creating a more favorable financing landscape. Such measures certainly helped break open the market for wind and solar.

“At the end of the day, unless and until we have a market structure to value this, an exogenous signal of that value has real purpose,” Burwen said. “It signals to market participants, ‘Your markets may not be sending you a signal; we know there is value, so we're going to send that signal.’”

At the very least, having a bill introduced gives the storage industry a reason to talk to legislators and educate them about the obstacles facing that sector. And, while most congressional Republicans reject the scientific consensus on climate change, the burgeoning energy storage industry offers a point where both sides of the aisle can find common ground.

“Republicans understand what it takes to be an entrepreneur, run a business and make sure you're not putting unnecessary tax burdens on folks who are trying to do new things,” Burwen said.

Whether that’s enough to overcome election year distractions and partisan gridlock is another story.